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Market Insight

Canal Plus fights competition body ruling on pay TV

July 22, 2012

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit
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Canal Plus has agreed conditions for its acquisition of two free-to-air channels with the French competition authority, but is contesting restrictions on its pay TV operations.

The Autorité de la Concurrence yesterday approved the pay TV group's acquisition of the Direct 8 and Direct Star channels from the Bolloré Group. The authority said it is prepared to allow the deal to go ahead, having agreed several conditions with Canal Plus and its parent company Vivendi.

These revolve around the acquisition of film and sports rights. Canal Plus will only be allowed to negotiate an output deal embracing pay TV and free to air rights with one of the six major studios. In addition, Direct 8 and Direct Star will be allowed to acquire a limited number of rights from the group's film arm StudioCanal, for a window of no more than six months. Free-to-air rights to all sporting events acquired by the group will be offered for sale by an agency independent of the group.

In pay TV, the authority reassessed the group's position in the French TV market as a consequence of the 2006 merger between its Canalsatellite subsidiary and the TPS platform owned by TF1 and M6. Here, the authority set out guidelines for the group's acquisition of sport and film rights and for carriage of channels on its Canalsat platform.

The regulator wants Canal Plus to acquire film rights for the first and second pay TV windows and rights to TV series under separate contracts with the Hollywood studios. Output deals with six majors and their subsidiaries limited to three years, without the option to renew. Video-on-demand and subscription video-on-demand rights should also be acquired separately.

It also wants Canal Plus to sell its minority interest in the Orange Cinema Series channels. Third party channels should also be allowed access to Canalsat on open and non-discriminatory terms, and a minimum of 55 per cent of the channels on the platform should be independent of the group.

Canal Plus said it disagreed with the Authority's arguments and would apply to the Conseil d'Etat to have its rulings overturned. The Bollore group acquisition is now waiting on approval from broadcasting regulator the CSA.

The decision by Canal Plus to move further into free-to-air TV has infuriated competitors like TF1 and M6, who may be partly pacified by the conditions agreed by Canal Plus, Vivendi and the competition authority. Canal Plus will not be able to exploit fully its pivotal position in the French film industry and its power over film and sports rights in the free-to-air space, and may have to place more of an emphasis on original programming in the line-ups of Direct 8 and Direct Star. Films are still an important part of free-to-air schedules in France, while the M6 Group's W9 has been successful showing sport. Bought-in US series like CSI and The Mentalist have also become mainstays of primetime schedules.

Nevertheless, a greater focus on original French dramas, comedies and entertainment will not be out of step with the ambitions that Canal Plus has for its newly-acquired channels. Earlier this year, the group set free-to-air expansion as an important strategic goal and forecast that advertising would deliver a majority of its operating profit by 2015. This objective reflects not only the dramatic increases in viewing and ad revenue enjoyed by free-to-air digital terrestrial channels in France, but also the stagnation of the pay TV subscriber base for Canal Plus.

The launch of Al Jazeera's BeInSport channels will put Canal Plus under further pressure. Earlier this month, BeInSport was reported to have already signed up 350,000 subscribers, well before the start of the football season in August.

While France Telecom earlier this year pulled out of the pay TV sports market, closing its Orange Sport channel, it is still involved in cinema, investing in new films and operating the OCS bouquet of pay channels. It had already negotiated an agreement with Canal Plus which included carriage of the bouquet on Canalsat and a minority stake in the venture. The authority, however, has decided that the telco has to be more competitive with Canal Plus, regardless of its strategic decision a couple of years ago to rein in its content investment.

ISPs are more likely to follow the Authority's cue and try to make inroads into the pay TV group's business. The main opportunity would seem to be carving out rights from the Canal Plus contracts with Hollywood studios.

Geography
France
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